A concept note floated by the finance ministry has proposed to exclude only a handful of services - education, funeral and farming activities from the tax net. The list of 27 segments that would be excluded from service tax also includes interest and dividend earned, religious services and betting and gambling.
In case of health, the finance ministry has given two options. One option is to exclude all services provided by clinical establishments with turnover under Rs 4 crore from the tax net. This means that apart from your medical bill at a large private hospital you will also have to pay service tax, which could be 10% of the total amount.
The second option is to keep hospitals, medical care, diagnostic and para-medical services out of the tax net. The only exception will be in case of health check-up and cosmetic or plastic surgery. After the last budget, the government had decided to defer a tax on most healthcare facilities in the wake of public protests led by hospital chains.
The concept note is the first attempt by the government to provide clarity on which services would be taxed and the ones that would be excluded. The move is part of the preparation being made for implementing a comprehensive Goods and Service Tax (GST) regime, which will shift the entire indirect tax levy to 16%. At present, the Centre levies 10% service tax but under the new dispensation the states will levy 8% tax, and the Union government will match it.
While releasing the concept note, the finance ministry said this is a preliminary exercice. "(The) negative list is formulated keeping in view a variety of considerations, for example, administrative, contractual obligations, difficulties to tax certain activities for want of ascertainable taxable value of each transaction or a number of socio-economic considerations as well as in the case of Indian constitutional limits," the paper said.
Along with the negative list the government has also sought to define 'service' for the first time. So, anything that is not classified as goods, money or immovable property will be treated as a service. The idea is to tax everything that is not on the negative list. Under GST, when the rates for taxing goods and services are the same, it would be much simpler to levy tax and also avoid disputes.
Over the years the government has been trying to bring more services under the tax net as this segment, including construction, accounts for 63% of India's economy. The services economy is estimated at nearly Rs 50 lakh crore, but service tax is expected to generate Rs 82,000 crore this fiscal - 8.8% of the budgeted tax receipts for 2011-12.